Amid the growth of investment vehicles that provide direct exposure to foreign stocks — such as Canadian depositary receipts (CDRs) and foreign single-stock ETFs — the Canadian Investment Regulatory Organization (CIRO) is adopting new controls to manually mirror trading halts in the underlying securities.
The self-regulatory organization issued guidance detailing its new approach to trading halts for CDRs and single-stock ETFs when the underlying security is halted on U.S. markets pending the release of material information.
Under the current approach, while these instruments are subject to the same volatility-driven circuit breakers as other securities, there’s no process for halting trading when the underlying security is halted on a foreign market due to forthcoming disclosure.
CIRO said that with the growth in these types of listings in Canada, exchanges and issuers are increasingly concerned about the risk of trading in Canadian instruments continuing while the underlying security is halted for the dissemination of material information.
“In particular, listing exchanges in Canada have noted that they have no relationship with the underlying issuer … and therefore do not have similar insights into the issuer that they have with traditional exchange listings,” it said. Exchanges can only halt trading of their own listings; they can’t stop trading in these vehicles on other trading venues.
While CIRO does not track issuers’ disclosure on foreign markets, it said it is adopting new procedures to facilitate trading halts in CDRs and ETFs based on halts in the underlying foreign issuers — leveraging its “existing surveillance” processes and personnel to implement regulatory trading halts across all Canadian markets.
“When a U.S. halt is identified that relates to material information disclosure, CIRO Surveillance will impose a manual halt in Canada,” it said. It will also manually resume trading in sync with the U.S. markets.
“This process will not be automated and will be subject to a delay,” it noted.
CIRO said it will not manually mirror foreign halts triggered by volatility controls on U.S. markets. And for foreign securities that aren’t listed in the U.S., it won’t manually halt these vehicles, as “there is no readily accessible method to monitor trading halts of [CDRs and ETFs] with no U.S. listing,” it said.